Q1 2026 New Oriental Education & Technology Group Inc Earnings Call
Operator: Good evening, and thank you for standing by for New Oriental Education & Technology Group's FY 2026 fifth quarter results earnings conference call. At this time, all participants are in listen-only mode. After management's prepared remarks, there will be a question and answer session. Today's conference is being recorded. If you have any objections, you may disconnect at this time. I'd like to turn the meeting over to your host for today's conference, Ms. Sisi Zhao.
Speaker #2: Good evening and thank you for standing by for New Oriental's FY 2026 first quarter results . Earnings Conference call . At this time , all participants are in listen only mode .
Speaker #2: After management's prepared remarks , there will be question and answer session . Today's conference is being recorded . If you have any objections , you may disconnect at this time .
Speaker #2: Now, I'd like to turn the meeting over to your host for today's conference, Miss Sisi Zhao.
Sisi Zhao: Thank you. Hello, everyone, and welcome to the first fiscal quarter 2026 earnings conference call. Our financial results for the period were released earlier today and are available on the company's website, as well as on NewsWare services. Today, Stephen Yang, Executive President and Chief Financial Officer, and I will share New Oriental Education & Technology Group's latest earnings results and business updates in detail with you. After that, Stephen and I will be available to answer your questions. Before we continue, please note that the discussion today will contain forward-looking statements made under the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements involve inherent risks and uncertainties. As such, our results may be materially different from the view expressed today. A number of potential risks and uncertainties are outlined in our public filings with the SEC.
Speaker #3: Thank you . Hello , everyone , and welcome to first Fiscal Quarter 2020 Earnings Conference call . Our financial results for the period were released earlier today and available on the company's website , as well as on newswire services .
Speaker #3: Today . Steven Yang , Executive and Chief Financial Officer And I will share new Oriental's latest earnings results and business updates in detail with you .
Speaker #3: After that , Stephen and I will be available to answer your questions . Before we continue , please note that the discussion today will contain forward looking statements made under the Safe Harbor provisions of the US Private Securities Litigation Reform Act of 1995 .
Speaker #3: Forward looking statements involve inherent risks and uncertainties . As such , our results may be materially different from the view expressed today . A number of potential risks and uncertainties are outlined in our public filings with the SEC .
Speaker #3: Forward looking statements involve inherent risks and uncertainties . As such , our results may be materially different from the view expressed today . A number of President Relations website at investor .
Sisi Zhao: New Oriental Education & Technology Group does not undertake any obligation to update any forward-looking statements, except as required under applicable law. As a reminder, this conference is being recorded. In addition, a webcast of this conference call will be available on New Oriental Education & Technology Group's investor relations website at investor.neworiental.org. I'll now first turn the call over to Mr. Yang. Stephen, please go ahead.
Speaker #3: Oriental does not undertake any obligation to update any forward looking statements except as required under applicable law . As a reminder , this conference is being recorded .
Speaker #3: I'll now turn the call over to Mr. Yang . Stephen , please go ahead .
Stephen Yang: Thank you, Sisi. Hello, everyone, and thank you for joining us on the call. Before diving into the details of our first quarter results, I would like to share that after a period of testing and trialing various business models and offerings, formulating the right strategy and direction for New Oriental Education & Technology Group, we're pleased to see that the company has now entered a stable growth trajectory. This quarter, we recorded an encouraging set of results that exceeded our expectations, mainly driven by our strong capabilities, enhancing operational resilience, and sustainable profitability. This quarter's total net revenue has increased by 6.1% year over year. Bottom line-wise, we're delighted to see that our efforts to manage costs and streamline efficiency have yielded tangible success, with non-GAAP operating margin reaching 22% this quarter, representing a year-over-year improvement of 100 basis points.
Speaker #4: Thank you . Stacey . Hello everyone , and thank you for joining us on the call . Before diving into the details of our first quarter results , I would like to share that after periods of testing and trialing various business models and offerings , the formulating the right strategy and direction for new Oriental .
Speaker #4: We're pleased to see that the company has now entered a stable growth trajectory this quarter we recorded an encouraging set of results that exceeded our expectations , mainly driven by our strong capabilities enhancing operational resilience and sustainable profitability .
Speaker #4: This quarter's total net revenue have increased by 6.1% year over year . Bottom line wise , we are delighted to see that our efforts to manage costs and streamline efficiency has yielded tangible success with non-GAAP operating margin reaching 22% this quarter , representing a year over year improvement of 100 basis points .
Stephen Yang: Our key remaining business remains solid, while our new initiatives have continuously demonstrated positive momentum. Breaking down for the first fiscal quarter of 2026, overseas test prep business recorded a revenue increase of about 1% year over year. Overseas study consulting business recorded a revenue increase of about 2% year over year. Our adults and university students business recorded a revenue increase of 14% year over year. At the same time, our continued investments in new education business initiatives, primarily centered on facilitating students' all-around development, have delivered consistent progress, further driving the company's overall momentum. Firstly, the non-academic tutoring business, which focuses on cultivating students' innovative ability and comprehensive qualities, has now been rolled out to around 60 cities. Market penetration has grown steadily, particularly across high-tier cities. The top 10 cities contribute over 60% of this business.
Speaker #4: Our key remaining business remains solid . While our new initiatives have continuously demonstrated positive momentum . Breaking down for the first fiscal quarter of 2026 , oversea test practices recorded the revenue increase of about 1% year over year .
Speaker #4: Overseas study consulting business recorded revenue increase of about 2% year over year . Our adults and university students business recorded revenue increase of 14% year over year .
Speaker #4: At the same time , our continued investments in New education business initiatives primarily centered on facilitating students all around development , have delivered consistent progress , furthering driving the company's overall momentum .
Speaker #4: Firstly , the non-academic tutoring business , which focussed on cultivating students innovative ability and comprehensive qualities , has now been rolled out to around 60 cities .
Speaker #4: Market penetration has grown steadily , particularly across high tier cities . The top ten cities contribute over 60% of this business . Secondly , the intelligent learning system and device business , which utilize our past teaching experience data technology to provide personalized and targeted learning and exercise content to improve students learning efficiency , has been tested in around 60 existing cities where encouraged by the improved customer retention and scalability of this new initiatives .
Stephen Yang: Secondly, the intelligent learning system and device business, which utilizes our past teaching experience data technology to provide personalized and targeted learning and exercise content to improve students' learning efficiency, has been tested in around 60 existing cities. We're encouraged by the improved customer retention and scalability of these new initiatives. The top 10 cities contribute over 50% of this business. In summary, our new educational business initiatives recorded a revenue increase of about 15% year over year for the first quarter of 2026. Moving to the integrated tourism-related business line, and breaking down both domestic and international study tours and research camps for K-12 and university students were conducted across 55 cities nationwide, where the top 10 cities contributed over 50% of our revenue. In parallel, we provide a series of premium tourism offerings, primarily designed for middle-aged and senior audiences across 30 feature provinces in China and internationally.
Speaker #4: The top ten cities contribute over 50% of this business . In summary , our new educational business initiatives recorded a revenue increase of about 15% year over year for the first quarter of 2026 .
Speaker #4: Moving to the Integrated tourism related business line and breaking it down both domestic and international study tours and research camp for K-12 and university students were conducted across 55 cities nationwide , with the top ten cities contributed over 50% of our revenue .
Speaker #4: In parallel , we provide a series of premium tourism offerings , primarily designed for middle aged and senior audiences across 30 , feature provinces in China and internationally .
Stephen Yang: Our product range has also been expanded to now include cultural travel, China study tour, global study tour, and camp education. With regards to our OMO teaching platform, our efforts in developing and revamping our online-merge-offline teaching platform continued. These efforts aim to deliver more advanced and diversified education services to our customers of all ages. A total of $28.5 million has been invested during the quarter to upgrade and maintain our OMO teaching platform. Beyond OMO, we continue to focus on our venture in AI. Our newly launched AI-powered smart education solutions and smart study solution mark significant steps of our ongoing pursuit to transform education through technology. Encouraged by the positive market feedback, we have been and will continue to refine and embed AI across our offerings to strengthen New Oriental Education & Technology Group's core capabilities.
Speaker #4: Our product range has also been expanded to now include cultural travel , China study tours , global study tours , and camp education .
Speaker #4: With regards to our OMO system, our efforts in developing and revamping our online merging offline teaching platform continued. These efforts aim to deliver more advanced and diversified education services to our customers of all ages.
Speaker #4: A total of $28.5 million have been invested during the quarter to upgrade the maintain our Omo teaching platform beyond Omo . We continue to focus on our venture in AI , our newly launched AI powered intelligent learning device , and smart study solution .
Speaker #4: Mark significant steps in our ongoing pursuit to transform education through technology. Encouraged by the positive market feedback, we have been and will continue to refine and embed AI across our offerings to strengthen New Oriental's core capabilities.
Stephen Yang: Simultaneously, we're also leveraging AI to streamline internal operations, thereby boosting efficiency and providing enhanced support for our teaching staff. As an industry leader, we're dedicated to driving long-term revenue growth through a dual focus on product innovation and operational efficiency. In upcoming quarters, we look forward to sharing tangible results and positive highlights on performance that are backed by our investments in AI. Now, with regards to East Buy's performance, in fiscal year 2026, East Buy strategically invested in its private label portfolio, centered around the promise to deliver products that are healthy, high quality, and good value for money. As we enrich East Buy's product categories, our blockbuster offerings, namely the nutritious food product line, have particularly stood out. We have strengthened our capability through rigorous end-to-end quality management, from sourcing to after-sale service, which resulted in greater market recognition for our private label products.
Speaker #4: Simultaneously . We are also leveraging AI to streamline internal operations , thereby boosting efficiency and providing enhanced support for our teaching staffs . As the industry leader , we are dedicated to driving long term revenue growth through dual focus on product innovation and operational efficiency .
Speaker #4: An upcoming quarters . We look forward to sharing tangible results and positive highlights on performance that are backed by our investments in AI .
Speaker #4: Now , with regards to the East , bias performance in fiscal year 2026 , East Bay strategically invested in its private label portfolio centered around the performance promise to deliver products that are healthy , high quality and good value for money .
Speaker #4: As we enrich East based product categories , our blockbuster offerings namely the nutritious food product line has particularly stood out . We have strengthened our capability through rigorous end to end quality management from sourcing to after sale service , which resulted a .
Speaker #4: Greater market recognition for our private label products . During the reporting period is the by further advanced its east by app and membership platform connecting our loyal customer base to premium products and services .
Stephen Yang: During the reporting period, East Buy further advanced its East Buy app and membership platform, connecting our loyal customer base to premium products and services. As the business continues to evolve steadily, East Buy has intensified its focus on improving operational efficiency and profitability metrics to align closely with the group's corporate strategies. Now, I will turn the call over to Sisi to share with you about the key financials. Sisi, please go ahead.
Speaker #4: As the business continue to evolve steadily east Bay has intensified its focus on improving operational efficiency and profitability . Metrics to align closely with the group's corporate strategy .
Speaker #4: Now I will turn the call over to Cici to share with you about the key financials . Please go ahead .
Sisi Zhao: Thank you, Stephen. Now, I'd like to share our key financial details for this quarter. Operating costs and expenses for the quarter were $1,212.2 million, representing a 6.1% increase year over year. Cost of revenues increased by 9.3% year over year to $637.8 million. Selling and marketing expenses increased by 3.6% year over year to $200.6 million. G&A expenses increased by 2.4% year over year to $373.8 million. Total share-based compensation expenses, which were allocated to related operating costs and expenses, increased by 239.8% to $23.3 million in the first fiscal quarter of 2026. Operating income was $310.8 million, representing a 6% increase year over year. Non-GAAP operating income, excluding share-based compensation expenses and amortization of intangible assets resulting from business acquisitions, was $335.5 million, representing an 11.3% increase year over year.
Speaker #3: Thank you . Steven . Now , I'd like to share our key financial details for this quarter . Operating costs and expenses for the quarter were $1,212.2 million , representing a 6.2 6.1% increase year over year .
Speaker #3: Cost of revenues increased by 9.3% year over year to $637.8 million . Selling and marketing expenses increased by 3.6% year over year to 200 and $200.6 million .
Speaker #3: G&A expenses increased by 2.4% year over year to $373.8 million . Total share based compensation expenses , which were allocated to related operating costs and expenses , increased by 239.8% to $23.3 million in the fiscal .
Speaker #3: In the first fiscal quarter of 2026 , operating income was $310.8 million , representing a 6% increase year over year . non-GAAP operating income , excluding share based compensation expenses and amortization of intangible assets resulting from business acquisitions , was $335.5 million , representing a 11.3% increase year over year .
Sisi Zhao: Net income attributable to New Oriental Education & Technology Group for the quarter was $240.7 million, representing a 1.9% decrease year over year. Basic and diluted net income per ADS attributable to New Oriental Education & Technology Group were $1.52 and $1.50 respectively. Non-GAAP net income attributable to New Oriental Education & Technology Group for the quarter was $258.3 million, representing a 1.6% decrease year over year. Non-GAAP basic and diluted net income per ADS attributable to New Oriental Education & Technology Group were $1.63 and $1.61 respectively. Net cash flow generated from operation for the first fiscal quarter of 2026 was approximately $192.3 million, and capital expenditure for the quarter was $55.4 million.
Speaker #3: Net income attributable to Neurontin for the quarter was $240.7 million , representing a 1.9% decrease year over year . Basic and diluted net income per Ads attributable to neural rental were 1.52 and $1.52 and $1.5 , respectively .
Speaker #3: Non-GAAP net income attributable to Neurontin for the quarter was $258.3 million, representing a 1.6% decrease year over year. Non-GAAP basic and diluted net income per ADS attributable to Neurontin were $1.63 and $1.61, respectively.
Speaker #3: Net cash flow generated from operations for the first fiscal quarter of 2026 was approximately $192.3 million, and capital expenditures for the quarter were $55.4 million.
Sisi Zhao: Turning to the balance sheet, as of August 31, 2025, New Oriental Education & Technology Group had cash and cash equivalents of $1,282.3 million, $1,570.2 million in term deposit, and $2,178.1 million in short-term investment. New Oriental Education & Technology Group's deferred revenue, which represents cash collected upfront from customers and related revenue that will be recognized as the service or goods were delivered at the end of the first fiscal quarter of 2026, was $1,906.7 million, an increase of 10% as compared to $1,733.1 million at the end of the first fiscal quarter of 2025. Now, I'll hand over to Stephen to go through our outlook guidance and our new shareholder return plan. Stephen.
Speaker #3: Turning to the balance sheet , as of August 31st , 2025 , Oriental had cash and cash equivalents of $1,282.3 million , $1,570.2 million in term deposit , and $2,178.1 million in short term investment rentals .
Speaker #3: Deferred revenue , which represents cash collected upfront from customers and related revenue that will be recognized as a service or goods were delivered at the end of the first fiscal quarter of 2026 was $1,906.7 million , an increase of 10% as compared to $1,733.1 million at the end of the first fiscal quarter of 2025 .
Speaker #3: Now, I'll hand over to Steven to go through our outlook, guidance, and our new shareholder return plan.
Stephen Yang: Thank you, Sisi. Following a strong start to the fiscal year, we're optimistic about further improving our margins and operational efficiency while staying committed to effect cost control and sustainable profitability across all our business. As part of these efforts, we're taking a thoughtful and strategic approach to capacity expansion and hiring, ensuring that we continue to grow without compromising the quality of our offerings. We plan to increase our presence in cities with stronger top-line and bottom-line performance last year, while carefully managing resources. Rest assured, we will closely monitor the pace and scale of new openings, aligning them with local operational needs and financial results throughout the year.
Speaker #4: Thank you, Sisi. Following a strong start to the fiscal year, we are optimistic about further improving our margins and operational efficiency while staying committed to effective cost control and sustainable profitability across all our businesses.
Speaker #4: As part of these efforts, we're taking a thoughtful and strategic approach to capacity expansion and hiring, ensuring that we continue to grow without compromising the quality of our offerings.
Speaker #4: We plan to increase our presence in cities with stronger top line and bottom line performance . Last year , while carefully managing resources .
Speaker #4: Rest assured , we will closely monitor the pace and scale of new openings , aligning them with local official needs and financial results throughout the year .
Stephen Yang: Guidance-wise, we expect total net revenue for the group, including East Buy, in the second quarter of the fiscal year 2026, September 1, 2025 to November 30, 2025, to be in the range of $1,132.1 million to $1,263.3 million, representing a year-over-year increase in the range of 9% to 12%. In the second quarter, we projected a notable acceleration of revenue growth in K-12 business, driven by our enhanced service quality, which has led to steady year-on-year and quarter-on-quarter improvements in student retention rates. As for the full fiscal year 2026, we're very confident that our previously provided guidance of total net revenue for the group, also including East Buy, to be in the range of $5,145.3 million to $5,390.3 million will be realized, representing a year-over-year increase in the range of 5% to 10%.
Speaker #4: Guidance wise , we expect total net revenue for the group , including East Bay , in the second quarter of the fiscal year 2026 , September 1st , 2025 to November 30th , 2025 .
Speaker #4: To be in the range of $1,132.1 million to $1,263.3 million , representing year over year increase in the range of 9% to 12% in the second quarter , we projected a notable acceleration of revenue growth in K-12 business , driven by our enhanced service quality , which has led to steady year on year and quarter on quarter improvements in student retention rates .
Speaker #4: As for the full fiscal year 2026 , we are very confident that our previously provided guidance of total net revenue for the group also including East Bay , to be in the range of $5,145.3 million to $5,390.3 million , will be realized , representing a year over year increase in range of 5% to 10% .
Stephen Yang: As part of our appreciation for our shareholders' unwavering support, we today announced that the shareholder return plan for the fiscal year 2026 has begun. The Board of Directors has approved an ordinary cash dividend and new share repurchase program. Regarding the ordinary share dividend, the ordinary cash dividend of $0.12 per common share or $1.20 per ADS will be paid in two installments, with an aggregate amount of approximately $190 million. The first installment, with $0.06 per common share or $0.06 per ADS, will be paid to holders of common shares or ADS of record as of the close of business on November 18, 2025, Beijing and Hong Kong time and New York time, respectively.
Speaker #4: As part of our appreciation for our shareholders unwavering support , we today announced that the shareholder return plan . Return plan for the fiscal year 2026 has begun .
Speaker #4: The Board of Directors has approved an Ultimate cash dividend and new share repurchase program . Regarding the ordinary share dividend , the ordinary cash dividend of $0.12 per common share , or 1.2 .
Speaker #4: Per dollar per ADSs will be paid in two installments with an aggregate amount of approximately $190 million . The first installments , with $0.06 per common shares , or $0.6 per ADSs , will be paid to holders of common shares of record as of the close of business on November 18th , 2025 .
Speaker #4: Beijing and Hong Kong time and New York time , respectively . The second installment , $0.06 per common share or $0.6 per ads , is expected to be paid around six months after the payment date of the first installment to holders of common shares and ads of the record date to be further determined by the board of directors .
Stephen Yang: The second installment, $0.06 per common share or $0.06 per ADS, is expected to be paid around six months after the payment date of the first installment to holders of common shares and ADS of the record date to be further determined by the Board of Directors. Details of the second installment will be announced in due course. Regarding the share repurchase program, pursuant to the new share repurchase program, the company may repurchase up to $300 million of its ADS or common shares from the open market over the next 12 months. To conclude, New Oriental Education & Technology Group remains committed to our trajectory of sustainable growth, delivering premium offerings to our customers and sharing the fruits of our success with our shareholders.
Speaker #4: Details of the second installment will be announced in due course . Regarding the share repurchase program pursuant to the new share repurchase program , the company may purchase repurchase up to $300 million of its ads were common .
Speaker #4: Shares from the open market over the next 12 months to conclude, New Oriental remains committed to our trajectory of sustainable growth, delivering premium offerings to our customers and sharing the fruits of our success with our shareholders.
Stephen Yang: We're also in close collaboration with the government authorities in various provinces and municipalities in China, ensuring compliance with the relevant policies, guidelines, and any related implementations, regulations, and measures, and adjusting our business operation as required. This is the end of our fiscal year 2026 Q1 summary. At this point, I would like to open the floor for questions. Operator, please open the call for these. Thank you.
Speaker #4: We're also in close collaboration with government authorities in various provinces and municipalities in China , ensuring compliance with the relevant policies , guidelines and any related implementations , regulations , measures and adjusting our business operations as required .
Speaker #4: This is the end of our fiscal year 2026 Q1 summary . At this point , I would like to open the floor for questions .
Speaker #4: Operator . Please open the call for this . Thank you .
Operator: Thank you. The question and answer session of this conference call will start in a moment. In order to be fair to all callers who wish to ask questions, we will take one question at a time from each caller. If you have more than one question, please request to join the question queue again after your first question has been addressed. To ask a question now, please press star 11 on your telephone keypad and wait for your name to be announced. To withdraw your question, please press star 11 again. We will now take our first question from the line of Felix Liu from UBS. Please ask your question, Felix.
Speaker #2: Thank you . The question and answer session of this conference call will start in a moment . In order to be fair to all callers who wish to ask questions , we will take one question at a time from each caller .
Speaker #2: If you have more than one question, please request to join the question queue. Again, after your first question has been addressed.
Speaker #2: To ask a question now , please press star one one on your telephone keypad and wait for your name to be announced . To withdraw your question , please press star one one again .
Speaker #2: We will now take our first question from the line of Felix Liu from UBS. Please ask your question, Felix.
[Analyst 1]: Hi. Good evening, management. Thank you for taking my question. I'm glad to hear that you mentioned or expected notable acceleration in your K-12 business in the upcoming quarter. I know previously there are market concerns over increased competition, especially over the summer. Could management elaborate on how's the latest competition landscape in K-12 that you're feeling at the moment? Have you made any adjustments to your strategy, and what is a reasonable level of sustainable growth for your K-12 business in the mid to long term? Thank you.
Speaker #5: Hi . Good evening management . Thank you for taking my question . I'm glad to hear that you mentioned or expected notable acceleration in your K-12 business in the upcoming quarter .
Speaker #5: I know previously there are market concerns over increased competition , especially over the summer . So could management elaborate on how how's the latest competition landscape in K-12 that you're feeling at the moment ?
Speaker #5: Have you made any adjustments to your strategy, and what is the reasonable level of sustainable growth for your K-12 business?
Speaker #5: In the mid to long term? Thank you.
Stephen Yang: Thank you, Felix. First of all, I'm very happy to see the revenue growth acceleration in our K-12 business since Q2. As you know, I started in Q1, and even for the whole year, I think our target is to enhance our quality of product and service in K-12 business. I think since Q2, we will see the good result. I think the better quality drives the student retention rate up after the summer. That means more and more students choose our Q2 course. Also, the better word of mouth attracts new student enrollment of our autumn classes. As you know, we meet some competition pressure in the summer because some competitors were using the low price or even the free course strategy. Now we're happy to see students came back to New Oriental Education & Technology Group to enroll our classes in autumn.
Speaker #4: Thank you Felix . You know , first of all , you know , I'm very happy to see the revenue growth acceleration in our K-12 business since Q2 .
Speaker #4: You know , as you know , started in Q1 and , you know , for the even for the whole year , I think our target is to enhance our quality of product and service in K-12 business .
Speaker #4: And I think since Q2 , we will see the good result . I think the better quality drives the students retention rate up .
Speaker #4: You know , after the summer . So that means more and more students choose chose our Q2 course . And , you know , also the better word of mouth attracts new student enrollment of our autumn classes .
Speaker #4: Yeah . As you know , you know , we meet some , you know , competition pressure in the summer because of the , you know , some competitors were using the low price or even the free course strategy .
Speaker #4: We are now happy to see students coming to our new rental locations to enroll in our classes for autumn. That is why we have raised the guidance for the K-12 business.
Stephen Yang: That's why we raised the guidance of the K-12 business. Let's divide the K-12 business one by one. We expect the K-9 new business revenue growth will be around 20% year over year growth in Q2. For the high school business, I think in Q2, the growth rate will return to double-digit growth. I think you see the revenue acceleration since Q2. I think the high student retention rate and the better word of mouth will drive the revenue growth acceleration. I believe the revenue growth acceleration will continuously be in since Q2 and throughout the year. For the whole year 2026, I think the K-9 business will be, the year over year growth will be over 20%. For the high school, like the double-digit growth.
Speaker #4: So let's divide the K-12 business one by one . And so we expect the canine new business revenue growth will be around 20% year over year growth in Q2 .
Speaker #4: And for the high school business , I think in the Q2 , the growth rate will returns to double digit growth . You know , so I think you see the revenue acceleration since Q2 and so I think the high student retention rate and the better word of back will drive the the revenue growth acceleration .
Speaker #4: And I think . I believe the revenue growth acceleration , you know , will continuously , you know , in things like Q2 and throughout the year .
Speaker #4: So for yeah , so you know , for , for the whole year 22 to 26 , I think the business will be , you know , the growth will be over 20% .
Speaker #4: And for the high school , you know , like the double digit , the growth . So I think our strategy is correct because , you know , the student retention rates both for the primary school students and middle school students and high school students , all business line the student retention rate is getting higher .
Stephen Yang: I think our strategy is correct because the student retention rates, both for the primary school students and the middle school students and the high school students, all business lines, the student retention rate is getting higher year over year.
Speaker #4: You know, over a year. Relax.
[Analyst 1]: Okay, thank you.
Speaker #5: Okay . Thank you .
Operator: Thank you. Our next question comes from the line of Alice Tai from Citibank. Please go ahead, Alice.
Speaker #2: Thank you . Our next question comes from the line of Alice Tai from Citibank . Please go ahead . Alice .
[Analyst 2]: Good evening, Stephen. I have two questions. Quick question. First, on SBC, it jumped a lot to $23 million. I'm wondering what drove this increase and what's the outlook? Count the other $21 million. Could you break down what the driver is for the business?
Speaker #6: Good evening . Stephen . I have a question . Quick question first on SBC . It jumped 20 , jumped a lot to 23 million .
Speaker #6: This what I'm wondering what drove this increase and what's the outlook ? I think . 21 million . Which break down what the drive for the .
Stephen Yang: Yeah. I think, Alice, your question is about the SBC, the share-based compensation. I think, you know, in the second half of the last fiscal year, we issue, we grant the AES shares to the management and the staff and teachers, you know, in the next three years. It's driving the SBC up. Yeah, the number of the SBC in this quarter is bigger than that of last year. Yeah, you know.
Speaker #4: Yeah I think Alice , your question is about the SBC , the share based compensation . I think , you know , in the second half of the last fiscal year , you know , we issued we grant the the , the AAS shares to the management and the the staffs and teachers , you know , in the next three year .
Speaker #4: So it's drive the , the SBC up and yeah , so the number of SBC in this quarter , you know , is bigger than the of last year .
Speaker #4: And yeah , but you know .
Sisi Zhao: You can roughly estimate going forward every quarter, the SBC expenses will be similar with this quarter and at this kind of level for the coming several quarters.
Speaker #3: Yeah , you can roughly estimate going forward every quarter the SBC expenses will be similar with this quarter's . And at this kind of level .
Speaker #3: Yeah . For for the coming several quarters . Yeah .
Stephen Yang: Yes, I think typically, the first of the year, we recorded more SBC expenses, more in the first year and then less in the second and the third year.
Speaker #4: But you know, I think typically in the first year we record, there are more SBC expenses—you know, more in the first year.
Speaker #4: And then last in second and third year , you know . Alex .
Sisi Zhao: Thanks so much.
Speaker #7: Thanks so much .
Operator: Thank you. We will now take our next question from the line of Lucy Yu from Bank of America Securities. Please go ahead, Lucy.
Speaker #2: Thank you . We will now take our next question from the line of Lucy Yu from Bank of America Securities . Please go ahead .
Speaker #2: Lucy .
[Analyst 1]: Stephen, I have a question on overseas. It looks like overseas has been stronger than your earlier expectation. Could you please break down the overseas test prep growth by age and also the overseas study consulting group growth breakdown by sub-segment? How should we think about the overseas sustainability growth, and will that impact your guidance for the full year? Thank you.
Speaker #3: Stephen .
Speaker #2: I have a question on .
Speaker #6: Overseas . It looks like overseas has been stronger than your earlier expectation . Could you please break down the test prep growth by age ?
Speaker #6: And also the consulting group growth , for example , by subsegment ? And how should we think about the overseas sustainability growth and will that impact your guidance for the full year ?
Speaker #6: Thank you .
Speaker #4: You know yeah . As for the overseas business , you know , as you know , we're adversely affected by the external environment .
Stephen Yang: Yeah. As for the overseas-related business, as you know, we are adversely affected by the external environment. Last quarter, we guided in Q1 the revenue of the overseas-related business would be down by 5%. In Q1, overseas test prep still grows by 1%. Overseas study consulting business grows by 2%. We will strive to minimize the negative impact going forward. In Q2, we still guide the overseas-related business will be down by a low single digit in Q2, which we are still using the conservative method to make the forecast. The negative impact from the international relationship, even the outside environment, changed a lot. We will strive to minimize the impact. We do expect we can beat our guidance because we do the guidance in Q2 even for the whole year more conservatively. Lucy.
Speaker #4: You know, you know, last quarter we guided in Q1 that the revenue of the overseas related business would be down by 5%.
Speaker #4: But in Q1 , I think , you oversea test still grow by 1% . Oversea consulting business grow by 2% . I think we will strive to minimize the the negative impact going forward .
Speaker #4: And so in the Q2 , you know , we still guide the oversea related business will be will be down by low single digit in Q2 , which we are still use .
Speaker #4: The conservative method to make the forecast and I think , yeah , the the negative impact from the like the , the international relationship , even the outside environment changes a lot .
Speaker #4: But I think we will strive to minimize minimize the impact . And so , you know , we do expect we can beat our guidance because we do the guidance in Q2 , even for the whole year , more , you know , the conservatively , Lucy .
[Analyst 1]: Stephen, just to follow up. For example, your overseas test prep is positive. By age group, like younger age, high school, and like college students, which one of them is better than expected? Also, for the overseas study consulting business, I believe that 60% is around pure consulting, and the other 40% is like background raising. Which part of that is better than expected?
Speaker #6: Stephen , just to follow up . So for example , your test prep is positive . So . By age group like younger like younger age mid or high school and college students , which one of them is better better than expected .
Speaker #6: And also for the consulting business I believe that 60% is around is pure consulting . And the other 40% is like background raising .
Speaker #6: So, which part of that is better than expected?
Stephen Yang: Within the overseas test prep, the younger age students who do the business of that part grow very fast, you know, even more than 25% year over year. That's why in the makeup of the adults or even the college students, you know, this is down. Within the overseas study consulting business, I think the non-U.S. and U.K. business, especially for the Asia country consulting business and the background improving business, you know, still grow very fast. As a whole, I think the overseas test prep and consulting business, we will still give the guidance like the 4% or 5% down year over year. I believe we will do better than we done our guidance.
Speaker #4: Within the oversea test prep ? The the younger age students group , you know , the business of that part grows very fast .
Speaker #4: You know , even more than 25% year over year . So that's why the make up of the like the adults or even the college students , you know , business down and within the oversea consulting business , I think the non US and UK business , especially for the Asia country consulting business and the background improving the business , you know , still , you know , grow very fast .
Speaker #4: So, as a whole, I think the overseas test prep and consulting business will still give the guidance for that, like the 4% or 5% down year over year.
Speaker #4: But I believe we will do better than our guidance. Lucy.
[Analyst 1]: Okay, thank you so much, Stephen.
Speaker #6: Okay. Thank you so much, Stephen.
Stephen Yang: Thank you.
Speaker #4: Thank you .
Operator: Thank you. Our next question comes from the line of D.S. Kim from JP Morgan. Please go ahead, D.S.
Speaker #2: Thank you . Our next question comes from the line of . DS Kim from JP Morgan . Please go ahead . DS .
Speaker #8: Hi , Stephen . Hi , Cecilia . Good evening and thanks for my thanks for taking my question . I actually wanted to ask , why the share price is down 6.7% pre-market , but I guess that's a question for the market that you .
[Analyst 3]: Hi, Stephen. Hi, Sisi. Good evening. Thanks for taking my question. I actually wanted to ask, why the share price is down 6%, 7% pre-market? I guess that's a question for the market and you. I actually have a question regarding shareholder return policies, if that's okay. How do we think about the policy going forward? Say, you know, is this based on your projected or budgeted net profit and payout ratio, or is it more based on our expectation on cash flows and whatnot? The reason why I'm asking is, if I use my own estimated GAAP EPS, what you announced is roughly about 100% payout, say like 40% payout for the dividend and 60% for buybacks based on my GAAP net profit or EPS. Is that what we should think about going forward?
Speaker #8: I actually have a question regarding shareholder return policy , if that's okay . How should we think about the policy going forward ? Say , you know , is this based on your perspective or budgeted net profit and payout ratio , or is it more based on our expectation on cash flows and whatnot ?
Speaker #8: The reason why I'm asking is if I use my own estimated GAAP EPs , what you announced is roughly about 100% payout , say like 40% payout for the dividend and 60% for buyback based on my GAAP net profit or EPs .
Speaker #8: Is that what we should think about going forward , i.e. , you know , like we could pay regularly over 50% as you guided , but more like 100% payout going forward .
[Analyst 3]: I.e., you know, like we could pay regularly over 50% as you guided, but more like 100% payout going forward based on this earnings and payout, or shall we treat that buyback as one-off only for the current year because the stock price is low and you know we only need, we can only expect 50% going forward? Can you walk us through how we can think about the payout ratio or shareholder return going forward?
Speaker #8: Based on this earnings and payout or shall we treat that buyback as one off only for current year because of the stock price is low and you know , we only need we can only expect 50% going forward .
Speaker #8: Like can we walk us through how we can think about the payout ratio or shareholder return going forward .
Stephen Yang: Thank you, D.S. It's a good question. I think last quarter, our board approved three years shareholder return plan. We announced earlier today we paid $190 million dividend, which amounted to 50% of net profit we generated last year. Combined with the $300 million, the new share buyback program. Let's do the math. I think the payout ratio this year is over 130% if you compare the capital allocation with the net profits we made last year. The dividends plus the share buyback yield is over 5%. I think going forward next year, the dividend we will pay because I think this is a regular dividend. The $300 million share buyback we announced this year is not one-time. It's not one-time. I think next year I will discuss with the board to push the board to approve the new capital allocation program.
Speaker #4: Thank you . Yes , it's a good question . I think , you know , last quarter , our board approved three years shareholder , the return plan .
Speaker #4: And you know , this , we announced earlier today , you know , we paid $190 million dividend , which money to the 50% of net profits we generate last year .
Speaker #4: And combined with the $300 million , the new share buyback program . So let's do the math . You know , we I think , you know , the I think the payout ratio this year is over 130% .
Speaker #4: You know , if you compare the the capital allocation with the net profit we made last year and the dividends plus the share buyback yield is over 5% .
Speaker #4: So I think the going forward next year , the I think the dividend we will pay because I think this is a regular dividend .
Speaker #4: And the $300 million share buyback , you know , we announced this year , this year is not one time . It's not one time .
Speaker #4: I think , you know , next year , I think I will discuss with the board and to , you know , push the board to approve the new capital allocation program .
Stephen Yang: I think we will keep the high level of the payout ratio and yield. Because, you know, think about that. We meet some pressure with slowing down the top line. We can still like that go like the 10% or plus top line growth and generate higher margin. Also, we are piling up the cash. That's why the board supports the management to pay more capital allocation to investors. I think the investors deserve to get more money, the capital allocation from the company. We announced in three years the shareholder return plan. I think in the next year, we will pay more.
Speaker #4: And I think we will keep the , you know , the high level of the payout ratio and yield because , you know , think about that .
Speaker #4: We we need some pressure slowing down the top line . And but you know , we can still like like the 10% or plus topline growth and generate higher margin .
Speaker #4: And also we are piling up the cash . So that's why the board support our management to pay more capital allocation to investors .
Speaker #4: And I think the investors did deserve to get more money . The capital allocation from the company . And so we announced this three years .
Speaker #4: The shareholder, the shareholder return plan. So I think in the next year we will pay more.
[Analyst 3]: Thank you, sir. If I may follow up just on that part, just to clarify, when I said 100%, that was based on fiscal year 2026, my EPS, because the wording of the announcement says this is a dividend for fiscal year 2026. Based on what you say, shall we going forward expect that like what you announced is actually coming out of fiscal year 2025 earnings and what you are going to announce next year will be coming out of fiscal 2026? Will there be a one-year delay? Is that how we should think about? I guess it's all flexible, but just wanted to get your thoughts.
Speaker #8: Thank you . Sir , if I may follow up , just on that part , the just to clarify , when I said 100% , that was based on fiscal year 26 , my EPs , because the wording of the announcement say this is a dividend for fiscal year 2026 .
Speaker #8: But based on what you say , shall we ? Going forward , expect that like what you announced is actually coming out of fiscal year 25 earnings and what you are going to announce next year will be coming out of fiscal 26 .
Speaker #8: So will there be one year delay ? And that is that how we should think about or , you know , I guess it's all flexible , but just wanted to get your thoughts .
Stephen Yang: I think this is our internal policy because, you know, we make the calculation based on the last year net profit. Last quarter, we announced that we pay no less than 50%. Finally, we paid 30%. Next year, I think we will calculate based on the net profit we made in fiscal year 2026, and we will do the same thing.
Speaker #4: I think this is our internal policy because , you know , we make the calculation based on the last year , net profit .
Speaker #4: So , you know , we last quarter we announced that we pay no less than 50% . But finally we pay 30% , only 30% .
Speaker #4: And next year , I think we will calculate based on the net profit we made in fiscal year 2026 . And we will do the same thing .
[Analyst 3]: Okay. Thank you, sir. I think that's actually much, much better than what I had expected. I am again wondering why stocks down 6%, not up 6%. Anyway, let's see how it goes. Thank you so much, sir.
Speaker #8: Thank you sir . I think that's actually much , much better than what I had expected . So I am again wondering why stocks down six not up six .
Speaker #8: But anyway , let's see how it goes . And thank you so much sir .
Stephen Yang: Thank you. Yes. Yeah.
Speaker #4: Okay . Thank you . Yes . Yeah . .
Operator: Thank you. Next question comes from the line of Yiwen Zhang from Citrix. Please go ahead, Yiwen.
Speaker #2: Thank you . Next question comes from the line of Ekin Cheng from Citic . Please go ahead . Equine .
Yiwen Zhang: Good evening, management. Thank you for taking my question and congratulations on the strong results. My question is regarding the operating margin. Since the operating margin in Q1 is quite good, I'm not sure if it was mainly due to the cost reduction plan or some other reasons. How can we expect the contribution of the cost reduction plan for the next season or for the full year? How do we expect the operating margin for the full year? Thank you.
Speaker #9: Good evening . Management . Thank you for taking my question and congratulations on the strong results . My question is regarding the operating margin since the operating margin in Q1 is quite good , I'm not sure if it was mainly due to the cost reduction plan or some other reasons .
Speaker #9: And how can we expect the contribution of the cost reduction plan for the next season or for the full year ? And how do we expect the operating margin for the full year ?
Speaker #9: Thank you .
Stephen Yang: Yi Quen, it's a good question about margin. Let us start the margin analysis of Q1 this quarter. Even though we meet some margin pressure from the slowdown of the overseas-related business, we still got the group margin expansion by 100 basis points in Q1. I think the margin expansion was mainly driven by the better utilization, operating leverage, the cost control, and the profit contribution from East Buy. As you know, we started to do the cost control since March in the last fiscal year, this year, March. We have seen the good result. I think it will help the margin expansion, even in the rest of the year, this fiscal year. We look ahead into the Q2 margin guidance. I think we are quite optimistic about the margin expansion for the whole group in Q2.
Speaker #4: It's a good question about margin . Let us start the margin analysis of the Q1 this quarter . You know , even though we made some margin pressure from the slowdown of the oversea related business , but we still got a group margin expansion by 100 basis point in Q1 .
Speaker #4: And I think the margin expansion was mainly driven by the better utilization of operating leverage and cost control and the profit contribution from East by , as you know , we started to do the cost control since March last fiscal year .
Speaker #4: This year , March , and we have seen the good result . And I think it will help the margin expansion . You know , even in the rest of the year , this fiscal year .
Speaker #4: As we look ahead into the Q2 margin guidance, I think we are quite optimistic about the margin expansion for the whole group in Q2.
Stephen Yang: That means the core business and the East Buy business, both of the business, the margin will be up in Q2. I believe the margin expansion in Q2 will be greater than that of Q1. As for the margin outlook for the whole year, I think the whole group is focusing on the profitability across all business lines. We are doing the cost control in all business lines. We do hope we can get the margin expansion for the whole year for the group. Thank you, Yi Quen. Thank you, Stephen.
Speaker #4: And so that means the core business , you know , and the East by business , you know , both of the business , the margin will be up in Q2 .
Speaker #4: And I believe the margin expansion in Q2 will be greater than that of Q1 . And as for the margin outlook for the whole year , you know , I think , you know , the whole group are focusing on the profitability .
Speaker #4: Across all business lines . We are doing the cost control in all business lines . So , you we do hope we can get the margin expansion for the whole year for the group .
Speaker #4: Thank you .
Speaker #9: Thank you . Stephen .
Operator: Thank you. We'll take our next question from the line of Elsie Sheng from CLSA. Please go ahead, Elsie.
Speaker #2: Thank you . We'll take our next question from the line of Elsie Cheng from . CLSA . Please go ahead . Elsie .
[Analyst 2]: Hi, Stephen, Sisi. Thank you. Congratulations on the very good result. I have a quick question on the tax rates because I noticed that the tax rate in the first quarter is higher. Could you let us know what we should look at for the tax rate in the next quarter and also for the full year?
Speaker #10: Hi , Stevens . Thank you and congratulations on the very good results . I have a quick question on the tax rates because I noticed that the tax rate in the first quarter is higher .
Speaker #10: So could you let us so what what should we look at the tax rate in the next quarter . And also for the full year .
Stephen Yang: Yeah. The Q1, I think the situation is special because, you know, even since the second half of the last year and Q1, you know, we paid dividends from the office to LISCO. You know, we need to pay the withholding tax to the tax bureau. It's driving the ETR up.
Speaker #4: Yeah , the Q1 , I think the situation is special because you know , even in the since the second half of last year and the Q1 , you know , we paid dividends from the fees to Lisco .
Speaker #4: And so , you know , we need to pay the withholding tax to the tax Bureau . So it's drive the the ETR up in Q1 .
Sisi Zhao: In Q1, it was 27%. Typically, we pay 25% of the ETR. Going forward, I think we probably will do more, pay more dividends from WUFI to LISCO. I think in this year, the ETR will be higher than that of last year where we're normal. The reason is that, you saw, we announced earlier today, we raised the capital allocation to investors, roughly $490 million as the capital allocation total. We need more dollars, and that's why it drives the ETR up.
Speaker #4: So , you know , it was 27% . And typically we paid 25% of the ETR . And going forward , I think we probably we will do more , pay more dividends .
Speaker #4: You know , from Wolfie to Lisco . So I think in this year , the ETR will be higher than that of last year .
Speaker #4: Were were normal . But I think the the reason is that , you know , you saw , you know , we we announced the earlier today , you know , we raised the capital allocation to investors .
Speaker #4: You know , the roughly $490 million as the capital allocation total . So we need more dollars and that's why it drives the the ETR up .
Operator: Okay, on this end, it's very clear. Thank you.
Speaker #10: Okay . On . It's very clear . Thank you .
Sisi Zhao: Thank you.
Speaker #4: Thank you .
Stephen Yang: Thank you. As a reminder, to ask a question now, please press *11 on your telephone keypad. We now take our next question from the line of Timothy Zhao from Goldman Sachs. Please ask your question, Timothy.
Speaker #2: Thank you . As a reminder to ask a question now please press star one one on your telephone keypad . We'll now take our next question from the line of Timothy Zhao from Goldman Sachs .
Speaker #2: Please ask your question , Timothy .
Operator: Hi, Stephen. Hi, Sisi. Thank you for taking my question. My question is regarding the K-2 non-union initiatives. When I look at the enrollment growth for this quarter, I still notice a pretty big gap between the non-academic tutoring and the intelligent learning system and device business. Just wondering, can we use that gap to model the revenue growth gap between these two segments for the first quarter or the second quarter? Do we think that this gap may sustain going forward, given for the intelligent learning system, I think it's very good business. It's probably also margin accretive to you. Thank you.
Speaker #11: Hi , Steven . Hi . Thank you for taking my question . My question is regarding the K9 unit , new initiatives . When I look at the enrollment growth for this quarter , I still notice a pretty big gap between the non-academic tutoring and intelligent learning system and devices .
Speaker #11: Just wondering , can we use that gap to model the revenue growth gap between these two segments ? For the first quarter or the second quarter ?
Speaker #11: And do we think that this gap may sustain ? I think going forward , given I think for the intelligence learning system , I think it's a very good business .
Speaker #11: It's probably also marginal . Credit to you . Thank you .
Sisi Zhao: I think the growth rate, the revenue growth of the junior high school business is a little bit faster than the primary school business. Because, first of all, it's a little bit lower base than the kids' business. Secondly, we spent a lot of the efforts and resources in the last three or four years to open a new business of the middle school business. I think the whole team contributed a lot, provided a better product to the customers, and the students love the new product. That's why the revenue growth is better. Going forward, I think we believe the revenue growth of the middle school business will be a little bit higher than the kids' business. As a whole, the K-9 new business growth, you saw our guidance of Q2. Even for the whole year, I think, yeah, definitely, the revenue acceleration is coming.
Speaker #4: I think the , you know , the growth rate , the the revenue growth of the , you know , junior high school business , you know , it's a little bit faster than the primary school as the business because , you know , first of all , of all , you know , it's it's a little bit low base than the kids business .
Speaker #4: And secondly , you know , we , you know , spend a lot of the efforts and resources in last three , four years to open a new business of the middle school business .
Speaker #4: I and I think , you know , the whole team , you know , contribute a lot of the , you know , provide a better the product to the customers and the students love the new product .
Speaker #4: That's why the revenue growth is better . And so going forward , I think , you know , you know , we believe the revenue growth of the middle school business will be , you know , a little bit higher than the cases .
Speaker #4: But , you know , as a whole , the canine business , you know , growth , you you saw our guidance for Q2 and even for the for the whole year , I think .
Speaker #4: Yeah , definitely . It's the revenue acceleration . Acceleration is coming . And so , you know , as I said in Q2 , the canine business roughly 20% top line growth .
Sisi Zhao: As I said, in Q2, the K-9 business, roughly 20% top line growth. We do hope we can do better in the second half of the year. Tim.
Speaker #4: And , you know , we do hope we can do better in the second half of the year . Jim . .
Operator: Understood. Thank you. Thank you, Stephen.
Speaker #11: Understood . Thank you . Thank you Steven .
Sisi Zhao: Thank you.
Speaker #12: Thank you .
Stephen Yang: Thank you. We are now approaching the end of the conference call. I'll now turn the call over to New Oriental's Executive President and Chief Financial Officer, Stephen Yang, for his closing remarks.
Speaker #2: Thank you . We are now approaching the end of the conference call . I'll now turn the call over to new Oriental's Executive President and CFO Steven Yang for his closing remarks .
[Analyst 1]: Again, thank you for joining us today. If you have any further questions, please do not hesitate to contact me or any of our investor relations representatives. Thank you.
Speaker #4: Again, thank you for joining us today. If you have any further questions, please do not hesitate to contact me or any of our Investor Relations representatives.
Speaker #4: Thank you .
Stephen Yang: This concludes today's conference call. Thank you for participating. You may now disconnect your lines.